Are you about to open a fixed deposit? Read this article to know 5 lesser known facts about FDs.
Fixed deposits have always been a popular investment option in India. Unlike market-linked investments, they are completely safe, easy to understand, and follow a guaranteed growth trajectory.
It makes fiscal sense to start an FD account if you have surplus funds with you, especially if you wish to realise future goals. However, do read up on the following 5 lesser known facts about FD accounts before you sign up:
#1. You get a higher rate of interest on senior citizen deposits.
The RBI mandates that banks and financial institutions will offer 0.5% higher interest rate on FD to senior citizens. For example, if a bank offers 8% interest on FDs to others, then it will offer 8.5% interest to senior citizen FD accounts. Thus, senior citizens have a good incentive to create fixed deposits in their name and earn more on their savings. Also, you can set aside your surplus funds in your parent’s FD account to earn more on it.
#2. You can create different FDs at the same time.
FDs help you create future wealth, and you can use them for several future goals. It is up to you to create one single FD account out of a large lump sum amount. Or you can split the sum of money to create several FDs of varying amounts and tenures, to coincide with future financial goals. For example, you can split the money equally and create one FD account for 2 years, another for 5 or more years, and a third for 10 years. For example, you can split the money equally and create one FD account for 2 years, another for 5 or more years, and a third for 10 years. This is known as ‘laddering’ of FDs for better appreciation as per goals. Do check the current FD rates being offered before you create the accounts.
#3. FD interest is taxable, so plan accordingly.
Many people are not aware that FD interest income exceeding Rs 10,000 in a year is considered as ‘income’ and taxed accordingly. Do keep this in mind when you open the FD account, and ask the bank (or use an online calculator) to find out how much TDS may be deducted on the deposit’s maturity.
#4. You can borrow money against the FD account.
The fixed deposit is quite liquid, in that you can either close the account prematurely if you require money in an emergency, or borrow a loan against the deposit. The loan is granted subject to the number of months already elapsed, and your credit history. Ask for the current FD rates for interest for such a loan before signing up. The process takes minimal paperwork and the money is released quite quickly.
#5. You will not earn anything on premature termination.
The bank will not give you interest earnings on the FD if you terminate the deposit before the tenure is up. However, you will receive the entire principal back. The account is terminated within a few hours of making the request.
